Cello Energy isn't on the list of cellulosic ethanol companies that Khosla Ventures has backed – at least, not in the green venture firm's public materials noting its broad investments in the biofuel sector.
But the Alabama-based startup has received about $12.5 million of the green venture firm's investment, according to a cellulosic ethanol market report published Friday by research firm ThinkEquity.
Now the question is, how far along is Cello in its goals of producing 70 million gallons of cellulosic ethanol next year – and can it and other cellulosic ethanol makers possibly meet federal goals to have 100 million gallons of the stuff available by a 2010 deadline?
According to the scant information about Cello – it has no website, and calls to its Bay Minette, Ala. Headquarters were not returned Friday – it intends to turn carbon-containing materials like biomass, plastics and tires into a diesel-like fuel, using heat and pressure in the presence of a metal catalyst.
That's according to ThinkEquity analyst David Woodburn, who reviewed patent applications from the company. Cello was formerly known as Forest Energy Systems and was founded by father-and-son team Jack and Allen Boykin, he said.
Among the few published reports on Cello is a February story from the Mobile, Ala. Press-Register newspaper, stating that the company was the target of a lawsuit by paper pulp maker Parsons & Whittemore Enterprises Corp. over an investment dispute.
That story said that Cello's Bay Minette plant cost $25 million and was in "startup phase" with a goal of making 20 million gallons per year of its fuel.
It also led Woodburn to court documents that contained a manufacturing and financing contract naming Khosla Ventures as an investor in the company, he said.
Doug Cameron, Khosla Ventures' former chief scientific officer, signed the contract he said. Cameron left the firm last year to become a managing director and chief science advisor for Piper Jaffray.
Beyond the initial $12.5 million, Khosla agreed to additional funding for a second and third plant in the contract, Woodburn said.
Those plants, along with a fourth new one, are meant to eventually reach 50 million gallons per year production, but Cello's shorter-term goal is to be producing 70 million gallons per year by next year, he said.
In fact, the Environmental Protection Agency is depending on the company to do so, he said. That is, the agency included the company in a list it published last month as part of its work on implementing the Renewable Fuel Standard passed in the Energy Independence and Security Act of 2008.
That standard calls for the country's fuel sellers to use 100 million gallons of cellulosic biofuels by 2010. But Woodburn's analysis indicates that at most, 39 million gallons of cellulosic biofuels will be produced in the country next year – up from the 28.5 million gallon estimate he put forth in December, but still far short of the federal goal.
And that could cause trouble for the fuel retailers in the country, since the mandate requires them to buy credits from the EPA for every gallon of cellulosic biofuel they can't buy on the market. Those credits are set to be priced at the difference between $3 and the wholesale price of gasoline at the time (see Consumers to Pick Up Tab for Off-Target Cellulosic Ethanol Industry).
The National Petrochemical and Refiners Association and the American Petroleum Institute industry groups are already asking the EPA to delay implementation of the standard, based on concerns about cellulosic ethanol's lack of progress in growing to match expectations, Woodburn noted.
Whether Cello can make its individual targets is an open question, Woodburn said.
"I believe that their process probably does work – you can take tires, you can take plastics, you could probably take cellulosic biomass, and you can cook it and get a diesel-like product out the back end," he said.
"The big question in my mind is, let's ramp that up to commercial scale, and see the quality coming out," he said.
That's the same question being faced by a host of Khosla-backed cellulosic ethanol makers, as well as the industry at large. The industry has seen a number of delays on plans for commercial-scale production, as well as some project cancellations (see Mascoma Starts Up Cellulosic Ethanol Demo Plant and this Green Light post).
Khosla Ventures didn't respond Friday to phone and email requests for comment on Cello or its investment in the company.
The firm's publicly listed biofuel investments include cellulosic ethanol makers Mascoma, Range Fuels, Coskata and Lanza, corn-to-ethanol company Cilion and so-called "future fuels" technology developers Amyris, LS9, Gevo and KiOR.